Reassessing Climate Investments: Are we missing the mark?

In the pursuit of achieving net-zero carbon emissions by 2030, Daria Saharova of VC World Fund, a European venture capital firm specializing in climate tech, posits that an increase of 590 percent in capital investment is imperative. Despite the considerable €19.6 trillion under management by European funds, with €19.6 billion invested in 2022, Saharova contends that this is inadequate. She advocates for an annual investment of at least €1 trillion to make significant progress in combating climate change.

Saharova finds optimism in the fact that Europe is a leading force in patent applications for climate technology, with 28 percent of all patents originating in the continent. However, she raises a critical issue regarding the misalignment between venture capital and emissions. She emphasizes that 48 percent of VC investment in 2022 was directed towards mobility technology, which only accounts for 15 percent of emissions. Meanwhile, more polluting industries such as manufacturing, food and agriculture, and the built environment remain underfunded, despite contributing to 85 percent of emissions.

The managing partner notes that personal behaviour change can only reduce 4.3 percent of emissions, with technologies that are already in the market accounting for 49.8 percent. This leaves 46 percent of emissions to be reduced by yet-to-be-developed technologies, underscoring the crucial need for venture capital in this area. Moreover, Saharova emphasises that venture capital investment in climate tech has historically been modest, with just 13 percent of climate tech funding allocated to venture capital.

Acknowledging the risks associated with investing in climate technology, Saharova highlights that investment in this area between 2008 and 2013 resulted in many failures. In light of this, she advocates for increased research and development (R&D) funding, as well as the development of a systematic approach to evaluating investment opportunities. This has led World Fund to develop a benchmarking system known as Climate Performance Potential (CPP), aimed at assessing the potential of startups to reduce emissions and their impact on the market. Saharova believes that this model will enable investors to make more informed decisions and predict the success of climate tech investments.

In conclusion, Saharova’s insights shed light on the potential for increased investment in climate tech, the need to realign funding with industries that have the greatest environmental impact, and the importance of developing a systematic approach to evaluating investment opportunities. As concerns about climate change continue to grow, it is imperative to rethink current investment strategies to more effectively combat environmental challenges.

This article appears in the March/April 2024 issue of WIRED UK magazine.